Never favoured demonetisation, suggested alternatives: Raghuram Rajan

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Never favoured demonetisation, suggested alternatives: Raghuram Rajan

In a recent interview with The Times of India, Raghuram Rajan, former governor of the Reserve Bank of India, said that it was important for India to get its citizens to pay tax, but that demonetisation had not proved to be a fruitful exercise.

This wasn't the first time that Rajan had warned against demonetization. The new book is a compilation of speeches he delivered on a wide range of issues as the RBI governor from 2013-16.

"Although there may be long-term benefits, I felt the likely short-term economic costs would outweigh them, and felt there were potentially better alternatives to achieve the main goals", he wrote in the book. "I made these views known in uncertain terms", he wrote.

The RBI note, he said, "outlined potential costs and benefits of demonetisation, as well as alternatives that could achieve similar aims".

Rajan, demitted office on September 3 previous year, precisely 35 days before PM announced for demonetization of rupees 1000 and 500 bank notes.

The GDP's (Gross domestic product) growth was slowed from 7% in October-December quarter to 6.1% in January-March and 5.7 % in April-June; due to the cash squash that enfeebled clients disbursing and demoralized the businesses from making new investments.

Rajan's term as the governor of the central bank was not extended amid speculations and ended in September 2016. Now, as the former RBI governor Raghuram Rajan has broken his silence, it seems that Urjit Patel is catching more flak for his role. He also alleged that RBI had even published a note calculating the costs and benefits.

"The RBI flagged what would happen if preparation was inadequate", the paper cited Mr Rajan as saying in the book that will be released next week. The first conversation was verbally but then he himself wrote to the central government stating the time to prepare for such a move. Phone calls to the RBI spokesperson went unanswered. It took banks much longer than the government had expected to tide over the cash crisis.

Still, Modi won popular support for his move, winning a landslide victory in crucial elections in Uttar Pradesh.

What followed, starting on the night of November 8, was sheer pain for the people of this country, some of whom were intoxicated with an anti-corruption, anti-black money narrative and with even a spurious "poor versus rich" debate that was clearly created to give a political dividend to the BJP in subsequent state elections.

Rajan's statement comes days after the central bank released data on demonetisation, according to which almost 99 per cent on the scrapped notes came back into the banking system.

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